Chapter 1 - Enterprise Flashcards
Define the term “business plan”
A written document that describes a business, its objectives, its strategies, the market it is in and its financial forecasts.
What is the main purpose of a business plan?
The main purpose of a business plan is for a new business to obtain finance for start-up. It provides evidence to lenders and investors that entrepreneurs have thought about and planned for the future.
What are the main elements of a business plan? (6)
- Executive summary: overview of the business and its strategy.
- Description of the business opportunity: Details of the entrepreneurs skills and experience, nature of product, target market.
- Marketing and sales strategy.
- Management team and personnel.
- Operations: premises, production facilities, IT systems
- Financial forecasts
Describe the benefits of a business plan.
-> It provides essential evidence to investors and lenders. A finance application is more likely successful.
-> Forces owner to think carefully about their proposal. The strengths and potential weaknesses.
-> Gives managers a clear plan of action to guide actions and decision making in the early stages of the business.
What are the limitations of a business plan? (12)
-> Does not guarantee successful business. Creates false sense of certainty
-> Forget based on forecasts and predictions
-> Must be detailed and supported by evidence.
-> Might lead entrepreneurs to be inflexible. Best plans allow flexibility as external events change.
-> plan is often set up before the business starts to run
-> plan may not be accurate/may be biased
-> plan may be unrealistic
-> business plan for a large business can be a very complex document
-> plans quickly become out of date/are short term
-> may cause inflexibility/over-reliance
-> reduce innovation
-> reveals future strategies to competitors
Explain the concept of added value.
Added value is the difference between the selling price of the products sold by a business and the cost of materials bought in.
All businesses aim to create value by producing goods and services and selling them for a hight price.
If a customer is prepared to pay a price greater than the cost of materials used to produce the goods or service, then the business has been successful in adding value.
What are the barriers to entrepreneurship? (5)
- Lack of business opportunity : identifying successful opportunities
- Obtaining sufficient capital (finance): insufficient savings/ no knowledge of support/ no trading record to present to banks/ poor business plan to convince investors of success
- Cost of good locations
- Competition: new businesses experience competition from established businesses with greater resources and market knowledge.
- Lack of customer base: new businesses must establish itself in the market and build up customer numbers quickly to survive.
What are the claimed benefits to an economy from successful business enterprise? (7)
-> Employment creation
-> Economic growth: increase in the output of goods = increase GDP = increased living standards
-> Business survival and growth: small businesses expand to become important, they take the place of businesses in decline/closing
-> Innovation and technological change
-> Exports
-> Personal Development
-> Increased social cohesion: Decrease in unemployment
What are the four factors of production?
- Land: renewable and non-renewable resources of nature
- Labour: manual/skilled labour. Make workforce
- Capital: finance needed to set up a business and pay for its continuing operations
- Enterprise: initiative and coordination provided by risk-taking individuals
Explain opportunity cost and provide an example
The shortage of products and the limited supply of resources forces us to make choices. In deciding to purchase/obtain item, we give up other goods. The next most desired option that is given up becomes opportunity cost.
Example: If a consumer needs to choose between purchasing a smartphone or sneakers, and they choose to buy the smartphone, the sneakers become the opportunity cost.
Describe some of the changes in a dynamic business environment. (4)
- New competitors entering the market
- Legal changes: examples include new safety regulations or limits on who can buy
- Economic changes: leave customers with less money to spend (change in consumer incomes)
- Technological changes: make the products or processes of new businesses outdated.
What are some reasons why some businesses succeed? (4)
- Good understanding of customer needs.
- Efficient management of operations
- Flexible decision making to adapt to new situations
- Appropriate and sufficient sources of finance.
What are some reasons why businesses fail? (3)
- Poor record keeping
- Lack of cash
- Poor management skills
What are some ways of adding value? (7)
Provide an example
- Branding
- Advertising
- USP
- Additional services
- Additional product benefits
- Reducing cost
- Increased quality
Explain: Sweet Manufacturer: extensive advertising to create easily recognised name and brand identity, attractive packaging, selling through established confectionary shops. Higher prices as a result of branding should add value.
Describe the qualities of a successful entrepreneur/intrapreneur (6)
- Innovation/creativity: identify, fill gap in market, original ideas
- Commitment and self-motivation: energy, focus, willingness to work hard
- Multi-skilled
- Leadership skills: lead by example, encourage, motivate.
- Self-confidence and ability to bounce back.
- Risk- taking
Explain the term intrapreneurship
This is the process of encouraging risk taking and enterprise by employees within a business to help create and develop new opportunities.
An intrapreneur is a person business employee who takes direct responsibility for turning an idea into a profitable new product or business venture.
What are the benefits of intrapreneurship? (5)
- Injecting creativity and innovation into the business
- developing new ways of doing business
- driving innovation and change within business
- creating a competitive advantage
- Encouraging original thinkers and innovators to stay in the business
Explain the term entrepreneur
An individual who has the idea for a new business, starts it up and carries most of the risks but benefits from the rewards.
Explain the term branding
The process of differentiating a product by developing a symbol, name, image or trademark for it.
What is a multinational business?
A business organisation that has its headquarters in one country but with operating branches, factories and assembly plants in other countries.
